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THE FOURTH REVOLUTION
Reviewed by ANDRE BEAUMONT
The last 50 years has seen three revolutions whose effects were global and which still resonate today: the Iranian revolution, the collapse of Soviet empire and the advent of the digital age.
There were other revolutions. Those in Prague and Manila spring to mind but their reverberations were more local and not of a type that shake up the world for a decade or more.
Today, as of May 2009, we are nearly two years into The Fourth Revolution. Most still know it as the recession and assume it is essentially a financially driven downturn with characteristics that are similar to other recessions that have preceded it.
In fact, the financial turmoil is the leading edge of major changes in business culture that will transform the way we live and perceive the concept of work. It appears it will be a revolution that will last at least half a dozen years but probably longer.
Of the last three revolutions each one has manifested a decreasing level of violence compared with the preceding one. Happily, the Fourth Revolution shows early signs of being peaceful and leaving existing structures of property rights intact. It is a revolution of business culture and of social change.
It should not be compared with a recession like that of the mid-1980s that had predominately economic rather than cultural characteristics, ended by recovery.
It is perhaps more comparable to the Napoleonic years on continental Europe, minus the wars and violence, if that can be conceived. A time when new concepts of social organization, new structures of law and cultural trends in art and fashion were rapidly exported across boundaries.
Today, the driver will be the need for new ways to do business. Markets will recover as liquidity reaches them but there is no way of going back to the recent ways of doing business on a long term basis, particularly in service industries.
Globalization will survive but many large companies will not in their current form.
Financial companies have been in the vanguard of those made to look like dinosaurs. Some are insolvent, others hiding possible future insolvency, a few destroyed by fraud and worst of all, many are zombies - wrongly structured, the wrong size and draining capital from where it is needed for recovery.
Some financial companies may be the first to take on new and innovative structures. First into trouble, first out - but this will be no guarantee of survival. All revolutions consume some of their children and the apparent rules will change more than once before the world settles down.
In short, the business culture of the last dozen years has had its day. It cannot be rescued by more or different regulation. It cannot return because consumers, purchasers and the market, having done better without it in the downturn, will bargain hard for something different when they have more prosperity. They will deny it legitimacy.
The revolution started in June 2007. After a month of increased volatility, the markets suddenly cracked. For the first time, every major financial centre experienced the same pronounced decline nearly simultaneously.
It was some months before it became common wisdom that the trigger had been sub-prime property lending in the U.S. The new downturn had the hallmarks of the U.K. recession in the 1970s - a prolonged financial recession with a very strong property component preceded by lax monetary conditions and over-lending. Then the FT 30 index here in London fell to 146 and Wall Street retreated 48%, a percentage fall marginally exceeded recently.
Advances in medical science and demographics increasingly suggest the life expectancy of those being born in advanced societies now will no longer be three score and ten but a century not out.
A business culture that ignores this in its employment philosophy has as its natural opponents over half the population.
A society like Britain that was one of the first to become a post-industrial service economy may be moving towards being a second generation service economy.
In a first generation service economy most industrial production has been moved out of it to locations - currently dominated by China - where labour costs are lowest and where constraints on enterprise are not prohibitive. A host of advanced services, in their own way labour intensive, fill the space left and are exported globally.
In the second generation service economy, much of the work undertaken by people can be and is done by that economy's computers.
An important proviso is that these shifts to different types of service economy are not absolute or total and much of a balanced economy remains.
A further reason why we cannot go back to the old business culture in Britain and, by analogy, elsewhere, is because Britain's service industry is due the shakeout that its agricultural, manufacturing and construction sectors have already had. It carries too many unproductive jobs.
Statistics can deliver malleable conclusions but the following can probably be said of employment in Britain.
Of adults 18-39 years old, over half are full-time employees. Of adults 40 years old or older - for convenience, let us call these, given the new demographics, the 40 -100 year old age bracket - over half are not full-time employees.
Some own businesses, some are artists, some self-employed, some pensioners, some do unremunerated work, some contract work, some are sick, some unemployed, some trade assets, some work at home increasing family well-being, many work lesser hours and some do work less well-paid than had been the case in their earlier occupations.
Indeed, at any one time, well over half are not classic full-time employees. Taken together with children, few of whom are full-time employees, they constitute the majority of the population.
Their total intellectual know-how exceeds that of any group of employees. Yet the business culture largely treats them as secondary. A large percentage of a country's human capital is not mobilised fully.
After the global consultancies, which arguably have evangelized a standard way of doing business, it is the recruitment industry that bears most blame for poor business culture over the past decade. It has commoditised recruitment and de-emphasised individuality as a resource.
In a second generation service economy, people might reasonably expect to work as employees for 20 years to gain an understanding of how the world works but not much longer. Typically, for the first 20 years of life they would be studying, then spend 20 years working as employees, then 60 years doing what they want to do but still being productive.
As well-known examples of later life productivity one might cite Silvio Berlusconi or Britain's former deputy Prime Minister, John Prescott. Both had early employment in merchant navies, both have for a long time since done what they want to do - become politicians and members of elite classes.
Economic reality and the ageism of the recruitment industry have de facto already introduced the 20-year employment span to Britain.
The challenge for a better business culture to meet will be to progressively develop ways for the 40-100 year old age bracket to be economically more productive, at a smaller scale of organization, and to be better rewarded.
So the outlook for a second generation service economy may be that economic importance will leach away from large companies to the smaller and that society will come to value individuality at the expense of commoditization. Industrialization, machines and computers will do the heavy lifting of making advanced economies grow.
In a business culture revolution, such as we are going through, it seems inevitable that some large companies will perish due to the excesses of the business culture.
Too many have business models based on artificially manufactured competitive advantage rather than real purchaser satisfaction.
Some of these are founded on legal sophistry, others on possessing tricks that purchasers, consumers or staff are supposedly not aware of, some even on substituting mistrust for trust as a basis of advantage.
On a generic basis one can ask: does a payment card company that psychologically profiles its customers to determine what errors they are likely to make, bases its marketing on this, uses legal sophistry to overcharge interest and cuts the telephone line when its customers point out its own legal mistakes and database entry errors have a defensible business model when a less expensive money transmission mechanism emerges or the EU changes the rules?
Or again, does a retailer that over-invests in data mining, monitoring technology and visible security guards really hold a sustainable competitive advantage over a peer that invests in low prices and a delightful shopping experience?
Computer databases have granted companies the possibility of greater scalability. They are also cost bases and, ultimately, people do not fit neatly into the categories of databases. Neither does the economic climate. The digital age will outgrow the over-simplification of the database and erode many business models.
Recruitment by database fit has deprived the productive economy of breadth of individuality. Does it particularly matter who a person has worked for before and whether that work has been continuous?
Does recruiting on the basis that the person worked for a prestigious name - Arthur Andersen, Enron, Marconi - sound so smart the year after the insolvency or near insolvency?
Would not recruiting on the basis that the person demonstrates much more ability than the job requires and that he or she is not sloppy provide more simple starting criteria?
Should not database fit be dispensed with entirely? Ted Turner staffed CNN with managers by travelling economy class on aeroplanes and recruiting those who sat next to him who showed dynamism. Few failed to live up to the challenge.
In the belief that it has been necessary to have national and regional champions in order to prosper under globalization, tenets of competition theory have been dispensed with.
Local clusters of companies in the same industry have made way for a few giants. If there are three major global audit firms how does this foster competition? Does it homogenize business culture?
In the eighties, in Britain, five companies dominated the brewery scene. They owned large estates of public houses that also sold their own beer and soft drinks, and, sometimes, their own spirits. They were vertically integrated. None had a dominant market share.
Controversially, at the time, the Monopolies Commission declared that they constituted 'a complex monopoly' and the Government introduced legal instructions to these companies, known as the Beer Orders, to reduce the size of their estates.
Today gas and electricity supply in Britain is certainly also 'a complex monopoly' of the same type but since the five dominant supply companies now come from three different EU countries and, it is argued, there is a need for the EU to have global scale energy supply companies, there is no equivalent to the Beer Orders to alleviate the perception of inadequate competition.
Were poor business culture merely a market phase one might leave it to the markets to correct. However, markets are delivering fewer problems than the business culture. Governments may also have failed to understand what small business is about.
In Britain, in a recent budget, the finance minister announced that to help small business he was appointing a leading venture capitalist to chair a committee.
To appoint thus is akin to appointing the active owner of a factory fishing fleet to help line fishermen catch salmon.
Venture capital is part of the finance industry. As a general rule it only supports scalable businesses and, of these, mainly just those in the information technology and life science sectors. Its support to other small business is close to negligible.
The earlier reality of public spending sometimes providing the seed corn of small business has gone by the board.
A decade ago a small business of, say, three or less employees could win a government contract or EU contract, albeit not too large a one.
These small contracts had, in practice, ample protection for public authorities: penalties for late or inadequate performance; remedies for non-performance. This sufficed. The risk was never great.
Such small contractors do not win public contracts today. Pre-qualification requiring a history of previously much higher turnover, bonding arrangements or guarantees that exceed the contract sum and the requirement of having been inspected for quality assurance purposes in the past mean that new companies do not start off working for public authorities as they used to. These, and an avalanche of other requirements, mean that new companies, and most long established small companies, will never score high enough to clear the pre-qualification assessment hurdles. Even the claims that small companies receive a springboard to other work from public work have been dispensed with from official rhetoric.
So if the smallest companies are excluded from contracts put out to tender by public authorities, even local authorities, what of medium sized and large service businesses? Or are such businesses in second generation service economies close to being internationally uncompetitive?
Most carry quite large contingents of human resource, legal and accountancy staff. Were most organizations to lose a quarter of each of these categories of staff, turnover would be unlikely to be diminished much at all. Perhaps a few people's jobs in the productive divisions would be harder as a result but competitiveness would be enhanced.
In the eighties, in Britain, Margaret Thatcher took both credit and blame for the shakeout in manufacturing industry and state owned corporations.
In the new millennium, most of the flab is to be found in the provision of services, both in the private and public sectors.
It has its roots in a poor business culture.
Conventionally, the blame is attributed to external sources e.g. the quantity of new EU legislation.
This precludes certain trends. For a couple of decades, Britain has been a contesting ground for continental European and American ideas. Few ideas that are uniquely British have emerged. So in the matter of tastes in food, or technical construction standards, Europe has won. In the adoption of a more legalistic approach to life and business, or in terms of working hours, America has won.
Were EU legislation not to exist, British judges and British lawyers would develop areas of U.K. law to fill the gaps and a culture that turns to the sanction of litigation would probably not be less likely.
Politics has largely been acquiescent to the business culture, failing to shape it to go in more humanely rewarding directions.
The Fourth Revolution is likely to do this. Certainly, it will relentlessly sweep away the business culture. No revolution, though, runs its course without undesirable effects, which is why we will need statesmen and stateswomen.
If greater unemployment proves to be one of these undesirable effects and new employment in traditional forms seems hard to achieve, especially if machines and computers come to do most of the heavy lifting of wealth creation, we must turn our minds to how to mobilize the 0-18 year old and 40-100 year old parts of the new demographic.
Cultural change in the education of the former? New economic frameworks for the latter? This revolution has just started and, of their nature, revolutions are unpredictable. We can only speculate in the direction of desirable outcomes.
A desirable outcome is that an individual can sell his or her own ability directly and unmediated by means that obscure capability.
The sportsman and artist are historical examples worth considering.
Over thirty years ago Billie-Jean King gave an interview to the BBC at the time she was winning multiple Wimbledon titles explaining how marginal the economics of attending each year to compete were. The Ladies' Champion's prize money was in the order of £5000.
Engaging in sport could and still can, strictly speaking, be viewed as a non-productive activity. In her day, many proudly retained the designation of amateur in professional competitions thus themselves acknowledging the validity of looking at sport this way. If no salary or sponsorship reached a competitor and the competition was shown on free-to-air television, sport could barely be said to contribute to GDP. With the notable exception that spectators paid entrance fees and this funded the prize money and the venue.
It is unlikely that significantly more people in Britain and America watched Venus or Serena Williams win multiple titles than watched Billie-Jean King.
Yet the means to monetize participation in sport for high performers has been transformed in the intervening years. Differences in contract and culture have turned sportspeople into substantial contributors to GDP.
Yet we know them for who they are, individuals, not as corporate beings, just as we know Palladio for himself not, as would probably be the case today, as the principal of firm of architects whose name would be soon forgotten and which relies on mediation like public relations to get work.
Today, technology will have to be pressed to monetize a greater range of activity that contributes to society.
The artist has always been in an uncertain position in terms of remuneration. Some artists receive nothing, others teach and receive sustenance as employees, and some sell their work for handsome sums. Most succeed in selling something at some point but the value they bring to society finds difficulty in being monetized.
Work put into society by other than those who are currently classified as employees needs multiple and better means to be monetized. So if the terms of trade of artists are now improving, this is perhaps a pointer to routes other types of work can be monetized better. If authorship can be recognized more, even better.
Let us consider the organist. Someone whose work falls between the practical and the artistic. Someone whose artistic contribution risked being ephemeral if he were not also a composer or, in the 20th century, a recording artist.
For centuries, being appointed to the titular post of organist by a bishop or a prince was a source of recognition, prestige and income. By the late 20th century, income of titular organists would have declined substantially relative to that of other occupations.
With the disappearance of record shops, the prospects of income from CDs or other forms of recorded music would have seemed grim to nearly all organists, titular or not. The market for recorded organ music was and is slight. In this it differs from, say, rock music.
Today, a new phenomenon has emerged. A few organists publish videos of themselves and their music free on the internet. Their work is no longer ephemeral. It can be kept. We can also judge it for ourselves. Recognition and, perhaps, prestige flows, too. As importantly, a few people will make a detour whilst on holiday, or on business, to listen to them in their own church or cathedral and maybe even part with a few Euros to listen to them in recital.
The exception that monetized Billie-Jean King's performances - the paying of an entrance fee by spectators or an audience - returns to the mainstream boosted by new technologies. If we can trust the demonstration provided via new technology, we'll buy the ability, too.
Other technological and cultural advances are now needed to directly extend opportunity to the 40-100 year old age group, potentially the most economically productive.
A succinct concept, recently put forward by the philosopher Baroness Onora O'Neill in her Ashby Lecture 2009, Perverting Trust, is that more unmediated communication is necessary if trustworthiness is to be determined or otherwise. It is required so that intelligent judgement can be made whether to trust or mistrust. (For an unmediated, earlier exposition, read the Reith Lectures 2002).
In the same auditorium the preceding evening (14th May 2009) another philosopher, Alain de Botton, said that in his research for his book on work he had found that one of the most common fantasies about work was that of owning a small shop where people could work whilst having a direct relationship with input and output.
One of the principal reasons why the dominant business culture is poor and why The Fourth Revolution will be a destroyer of old businesses if because for many of these nearly everything is mediated.
Mediated through marketing, lawyers, public relations, quality assurance, human resource policies, market research, corporate governance guidelines and much more that defies concise description. Mediated to the extent that many thousands worked with few misgivings for Enron without understanding what the purpose of the company was.
The imperatives of demographic change, that the business culture has overreached itself with mediation and the productivity gains that computers can deliver - all invite rule reversal.
Revolutions are made of rule reversals. Rule reversal, at its least, makes previous practice look ridiculous. Rule reversal, operating fully, makes what was commonly acceptable become unacceptable and dangerous. At its best, rule reversal is merely a return to common sense, so long abandoned.
Society and technology will find ways for a new business culture to give individuals greater expression.
Within the bounds of a review, this text can only be a tour d'horizon of what is happening.
An example of the ridiculous is to spend most of the budget on marketing only to deceive and mistreat the acquired customers sufficiently to make them wish to leave.
An example of something inviting rule reversal is lending long term against income streams that will not exist long term.
The rule reversal here would be to lend short term against plentiful security. Were this to happen half as easily as mortgage loans have been made, economies would be transformed temporarily, as those over forty in particular borrowed to create new businesses.
The demise of some banks and the leaving of other as zombies with doubts as to their solvency already make for more virulent examples of rule reversal than those offered as possibilities above. These banks, once the arbiters of the solvency of others, have simply given up the ghost or their reputations.
It is essentially a revolution of business culture.
All revolutions have consequences in other domains of life. Neoclassical architecture came to Sweden partly because it elected a French Marshall as its Crown Prince, importing Empire taste, not because Bonaparte ever invaded mainland Sweden.
Bank failures and banks' inadequacies of capital have to date brought about governmental changes in Belgium and Iceland but changes containable within the democratic system.
It is the job of public authorities to ensure that The Fourth Revolution will remain one of the business culture.